MODULE - 4 BUSINESS ENVIRONMENT

LEARNING OBJECTIVE
This module aims at equipping students with the knowledge and skills necessary to understand
the internal and external factors shaping the business landscape, identify opportunities, assess
risks, and develop strategies to build successful and sustainable businesses.

INTRODUCTION
The business environment is a complex and dynamic system that includes various internal and
external factors that influence the operations of a business. Aspiring entrepreneurs need to
understand the business environment to develop an in-depth understanding of the market, the
industry and the completion.
Suffice to say that external factors and internal factors can influence each other and work
together to affect a business. For example, a health and safety regulation is an external factor
that influences the internal environment of business operations. Additionally, some external
factors are beyond the entrepreneur’s control. These factors are often called external
constraints.
Below are some key environmental factors:

THE INTERNAL BUSINESS ENVIRONMENT

The internal business environment is typically categorized into two main types: micro and
macro environment. Let's take a closer look at each type.

1. Micro Environment - The micro environment consists of internal factors that are within the
control of the organization. These factors include the organization's structure, processes,
culture, employees, and resources.

Availability of Funds: Funding is one of the most important factors that affect the growth and
development of any business. The success or failure of a business venture depends largely on
the ability to raise funds. Funding could come from personal savings, friends and family or
borrowing from banks.

Management Style: The style of management could be democratic, participatory or autocratic

in nature. However, the style of management will go a long way in determining the success or
failure of such organization. If the management style is autocratic, the employees may not put
in their best due to undue pressure but if the management style is democratic and
participatory, the business is likely to prosper.

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Attitude of Employees: The attitude of employees may either attract or repel customers from
having dealings with the organization. In other words, the attitude of the employees may either
be negative or positive to customers.

Working Capital and Tools: Adequate capital and necessary tools must be made available to
ensure smooth running of any business enterprise. Lack of availability of capital and tools can
lead to the collapse of any business organization.

Condition of Service for Employees: The condition of service for employees must be favourable
to enable them contributes their quota to the growth and the development of such a business
organization. As a matter of fact, reward must be strictly based on performance.

Management Policies: These refer to the laid down rules and regulations governing the
activities of employees in such a business enterprises. The policy must be flexible and
accommodative in order to create room for the use of personal initiatives by the employees.

2. Meso Environment - The meso environment refers to the factors external to the organization
but within the industry and market. These factors include competitors, suppliers, customers,
and other stakeholders.

Customers: They are the first thing that would always come in mind when external force
influence is looked into as they’re the one who have the power to create or reduce the demand
for a product. For example, if a customer wants more smart phones, then there will certainly be
a higher demand for the company making temper glass and other such accessories.

Suppliers: Most of the companies don’t produce all the items that go into a product by
themselves. Take an example of Apple itself, they import screen for their mobile phones from
Samsung along with other parts which they bring together to form a complete product. And, as
suppliers are the one who you or your company is to buy such products from, they’re going to
have an effect.

Competition (competing companies): They do become a major part of the task environment as
other competing companies may be providing better or similar products to the same target
segment.

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EXTERNAL BUSINESS ENVIRONMENT (MACRO ENVIRONMENT)
Macro Environment - The macro environment consists of factors that are beyond the control of
the organization and impact the industry as a whole. Examples of these factors include political,
economic, social, and technological trends.

ECONOMIC ENVIRONMENT: The economic environment involves analyzing the economic

system, trends, and fluctuations. Entrepreneurs need to assess the demand and supply of goods
and services, inflation rates, interest rates, exchange rates, taxes, and government regulations.
By doing so, they can determine the feasibility and competitiveness of their business ideas and
strategies.

SOCIAL ENVIRONMENT: The social environment comprises the values, attitudes, beliefs, and
behavior patterns of society. Entrepreneurs must understand the demographic, psychographic,
and cultural factors that influence consumer preferences and needs. This understanding
enables them to tailor their products or services to meet the changing demands of the market.

POLITICAL AND LEGAL ENVIRONMENT: The political and legal environment involves analyzing
the policies and regulations formulated by the government. Entrepreneurs need to comply with
laws that govern trade, taxation, employment, and environmental protection. Understanding
the political and legal environment also helps entrepreneurs anticipate potential risks and
opportunities.

TECHNOLOGICAL ENVIRONMENT: The technological environment involves analyzing the

advancements in technology and how they influence business operations. Entrepreneurs must
continuously innovate and adapt to technological changes to remain competitive.

In conclusion, understanding the business environment is vital for entrepreneurs as it forms the
basis for making informed decisions, developing strategies, and implementing plans that lead to
the success of their businesses.

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Book References:
- "Organizational Behavior" by Stephen P. Robbins and Timothy A. Judge

- "Corporate Culture and Performance" by John P. Kotter and James L. Heskett

- "The Essential Guide to Managing Small Business Growth" by Jeff Cornwall

- "Marketing Management" by Philip Kotler and Kevin Lane Keller

- "Competitive Strategy: Techniques for Analyzing Industries and Competitors" by Michael E.

Porter

- "The Four Steps to the Epiphany: Successful Strategies for Products that Win" by Steve Blank

- "Management Information Systems: Managing the Digital Firm" by Kenneth C. Laudon and
Jane P. Laudon

- "The Future Is Faster Than You Think: How Converging Technologies Are Disrupting Business,
Industries, and Our Lives" by Peter H. Diamandis and Steven Kotler

- "An Introduction to Global Financial Markets" by Stephen Valdez and Philip Molyneux